Hepsiburada Trading Update and Valuation - The Rally Has Legs

EBITDA and earnings curves are steep. We expect the market to continue exploring the shape and scope of the turnaround in EBITDA until the publication of June quarter accounts. The recovery curves for both EBITDA and earnings should turn steeper in the remainder of the year; and steeper the curves are likelier to see positive surprises. We would indeed expect the improvement in EBITDA to gather momentum and the street's conversation to gradually turn to earnings after they digest the June numbers.

It is EBITDA and not earnings yet. What do we expect the shares to do against this backdrop? The stock has started factoring in the EBITDA trend and should gain more between now and the year-end. The share price gains are still driven by EBITDA recovery. We are not talking about earnings yet; and the market is not yet pricing in Hepsiburada earnings rebounding. That would be the start of the next leg in the rally as the stock starts appearing in risk avert investors’ radar and the release of June quarter financials prompts earnings upgrades. We would expect a second and even a stronger rally which should spill well over into the next year as the stock rerates.

Value proposition. How do we go about quantifying the value proposition? One way is to compare and contrast the operating outlook against the enterprise value the market has on offer for any incremental EBITDA Hepsiburada is set to generate. For a start, we expect Hepsiburada's EBITDA CAGR to outperform significantly its EMEA and LATAM peers with a three-year view. We are looking to a 3YR EBITDA CAGR north of 50% on our expectations versus low-teens with the peers over the same period. We have penciled in a conservative 2% EBITDA margin for 2023 and would expect the margin to exceed the 5% mark in 2024 and 10% in 2025. If you were to price enterprise Hepsiburada on EV to EBITDA plotted against 3YR EBITDA CAGR, you would come up with a multiple in double-digits. A 10x, for example, would imply an equity value above $2 billion versus circa $0.5 billion now. To put the 10x we quote here in context, the LATAM and EMEA marketplace multiples are well above 20x with only moderate operating outlooks.

Reiterating our view that the stock offers a compelling value longer term. We like the stock because it remains the single most attractive marketplace/ecommerce player on various valuation metrics we keep track of. We like Hepsiburada also because it provides unique exposure to both a lucrative consumer and a growing enterprise sector in one of the most demographically attractive and underrated regions of the world.